Flexibility is the Secret to Saving Money on Travel – Part I

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The demand for travel in 2016 is strong.  This has resulted in fewer deals and the need for extra planning if you want to save some money.   Flexibility on when and where you travel can have a huge impact on travel costs.  Try to avoid travel on major U.S. holidays and on major holidays in countries that you will be visiting.  If possible, avoid peak season and travel during the shoulder seasons which fall in September, January and April.  Generally, you can save money by flying in the middle of the week or on Saturday afternoon.   Additionally, it’s usually cheaper to fly very early in the morning or late at night.  Prices will vary based on supply and demand.

Booking your flight well in advance of your preferred departure date can also save money.   After analyzing over 3 million airline trips, CheapAir found that the best time to book domestic airfare is 54 days prior to your departure.  Similarly, Expedia’s Air Travel Outlook for 2016, found the best time to buy a domestic ticket is 57 days prior to departure and the best time to buy a ticket from North America to Europe is 176 days before departure.

To find the most cost effective combination of date and location use on-line sites such as Kayak Explore.  Kayak Explore allows you to interactively change the date to see how the airfare changes for cities throughout the U.S. or the world, all on one screen.

Flexibility with regard to your destination can result in significant savings – costs vary dramatically depending on the country or region you are visiting.  In 2016 some of the most expensive countries to visit include Norway, Sweden, Switzerland and Japan while some of the least expensive countries include Slovakia, Croatia, Poland, Romania and Morocco.  Information on the comparative travel costs in various countries is available on Numbeo.com/travel-prices and fareness.com.   You can also reduce travel costs by flying into smaller cities or less popular cities.   When travelling to Europe consider flying into a less popular city on a major airline and connect to cities within Europe on small, inexpensive regional carriers like Air Berlin or EasyJet.

Once you have decided upon a date and destination use airfare search sites such as Cheaptickets.com, CheapAir.com and Expedia.com to shop and compare flights on different airlines.  However, keep in mind that several airlines, including Southwest, are not listed on aggregation sites.  Do some research and check fares on all major airlines with service to your destination.  Check both round trip and one way ticket prices.  Some airlines have recently begun offering two, one way segments for less than a round trip ticket.  Once you have selected a flight try to book directly with the airline you will be using.  The prices are usually comparable and it will be a lot easier to reschedule if any problems arise.

Taking the Mystery Out of Alternative Minimum Tax

office pictures may 2012 002This year many taxpayers were faced with the unwelcome surprise of Alternative Minimum Tax on their income tax return. Alternative Minimum Tax (AMT) is a complex, parallel income tax system to the standard income tax calculation.  AMT was started in 1969 in an attempt to prevent very wealthy people from using large deductions and exemptions to avoid paying income tax.  At that time it was discovered that 155 households with income over $200,000 were able to avoid paying any income tax.  AMT was originally aimed at the very rich but over the years it has come to impact millions of middle and upper income taxpayers.

Until you are hit with AMT, you may be unaware that behind the scenes your tax software runs two sets of numbers to determine how much income tax you will owe.  Your return is calculated using the standard income tax rules and it is calculated using the AMT rules.

AMT recalculates your taxable income by adding back many commonly used deductions and exemptions.  Some of the most common AMT add-backs include state and local taxes including real estate taxes, miscellaneous itemized deductions, home equity loan interest that isn’t used to buy or improve a home, and medical expenses.  AMT also adds back exemptions for dependents and the standard deduction, if you don’t itemize.  Tax-exempt interest from most private activity bonds becomes taxable under AMT and if you exercise Incentive Stock Options, the gain becomes taxable upon exercise. Under the standard income tax calculation, tax is due when the stock is sold.

If there is a possibility you will be subject to AMT, I recommend having your taxes professionally prepared or using tax preparation software.  Your software will calculate AMT by adding the items listed above to your adjusted gross income to arrive at your Alternative Minimum Tax Income (AMTI).  You are allowed to exempt some of your income from AMTI.  For 2016 the exemption for single filers is $53,900 and for joint filers is $83,800, the exemption is reduced for higher income taxpayers.  AMT is calculated by subtracting your exemption from your AMTI and multiplying your first $186,300 by 26% and anything over $186,300 by 28%, these figures are adjusted every year.  Your total income tax for the year will be the higher of your standard income tax calculation or AMT.

Taxpayers who are most likely to fall into AMT are those who live in a state with high income taxes, those with high deductions and those with large families. While there are limited opportunities to reduce the likelihood of paying AMT, one option is to reduce your adjusted gross income by maximizing tax deferred retirement plans such as 401k and 403b plans.  You also may be able to reduce AMT by moving to a state with no or low income tax or by managing the timing on when you pay state and local taxes.